Recovery of tax arrears

Recovery of arrears in payments

Not always a taxpayer (a withholding agent) can pay taxes and related amounts within the time limit set by laws. When the taxpayer fails to pay the said amounts in a timely manner in accordance with the procedure prescribed by the tax law or accompanying legal act, arrears in payments form (Article 2(19) of the Law on Tax Administration (hereinafter – TAL)).

Actions of administration of tax arrears:

1. Recovery in non-dispute procedure

2. Tax reliefs applicable to the taxpayer in tax arrears

3. Recognition of arrears in payment as bad tax arrears

4. Application of limitation period to enforced recovery of arrears in payment

5. Take-over of arrears in payment

6. Payment of tax and related amounts for the benefit of the taxpayer

 

1. Recovery in non-dispute procedure

The tax administrator shall have the right to recover the following in application of methods of enforced recovery of arrears in payment provided for in Article 106 of the TAL:

  • the declared tax arrears and/or arrears in late payment interest;
  • tax arrears and other tax related amounts calculated during inspection.

Legislation

Law on Tax Administration of the Republic of Lithuania

Code of Civil Procedure of the Republic of Lithuania

Law on Mutual Assistance for the Recovery of Taxes of the Republic of Lithuania

Order No. V-11 "On the Approval of Forms" of Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 14 January 2003

Recovery enforcement measures

In order to recover arrears in payment, tax administrator shall have the right to apply the following ways of enforcing tax obligations provided for in Article 95 of the TAL:

  • late payment interest;
  • seizure of property;
  • instructions given to a credit, payment or electronic money institution to terminate the withdrawal and transfer of money from the taxpayer's account (accounts);
  • mortgage;
  • suretyship or guarantee, including cases where suretyship or guarantee is used to enforce a potential tax obligation.

Invitation                                                                                         

The tax administrator shall in cases provided for by laws communicate to the taxpayer who fails to discharge tax obligations in due time a reminder to pay taxes and related amounts voluntarily within 20 days from the day of delivery of the reminder to the taxpayer, unless the tax law establishes another deadline.

According to Article 89(1) of the TAL, the State Tax Inspectorate shall communicate to the taxpayer in one of the following cases:

  1. a decision on the taxpayer's appeal in a tax dispute comes into effect;
  2. a negative decision is adopted in respect of the taxpayer's request to defer or spread the time limit for discharging arrears in payments;
  3. a tax instalment agreement is terminated;
  4. a taxpayer fails to pay a tax not subject to declaration within the period of time set in the relevant tax law.

Right to enforce the recovery of arrears in payment

According to Article 105 of the TAL, the tax administrator shall acquire the right to enforce the recovery of the taxpayer's arrears in payment based on at least one of the following grounds:

  1. the taxpayer fails to pay the tax and related amounts specified in the reminder of payment issued by the tax administrator;
  2. the taxpayer fails to pay the declared tax or a tax indicated in the customs declaration within the time limit laid down in the relevant tax law or a subordinate legal act adopted on the basis thereof;
  3. the taxpayer fails to pay the tax and related amounts specified in the tax administrator's decision, in accordance wherewith the tax and/or related amounts are calculated anew and the taxpayer is instructed to pay them, within the time limits indicated in paragraphs 2 and 4 of Article 81 of the TAL.

The right to recover arrears in payments shall be acquired on the next day after the expiry of the time limit specified in the reminder to pay taxes and related amounts voluntarily and, if the reminder of payment is not sent, – on the following day after the expiry of the time limit set in subparagraphs 2 and 3 of paragraph 1 of Article 105 of the TAL. In cases where after the expiry of the time limit for the payment of tax, the taxpayer files a delayed tax return or an adjusted tax return, the tax administrator shall acquire the right to recover the tax specified in the adjusted tax return and related late payment interest on the next day after the submission of said tax return.

The tax administrator shall acquire the right to enforced recovery of arrears in payment of a penalty for an administrative offense on the following day after the expiry of the time limit for the payment of the penalty provided for in Article 313 of the Code of Administrative Offenses. If the payment of the penalty for an administrative offense has been deferred or spread in the procedure prescribed by this Law or Code of Administrative Offenses, the  tax administrator shall acquire the right to enforced recovery of a penalty for an administrative offense on the following day after the termination of a tax instalment agreement or the time limit for the payment, deferral or spray of a penalty for an administrative offense has expired.

Methods of enforced recovery

According to paragraph 1 of Article 106 of the TAL, a tax administrator shall enforce arrears in payment:

  1. by instructing a credit, payment and/or electronic money institution to write off the amounts of arrears in payment from the person's account (accounts). Such an instruction shall be carried out in accordance with the procedure laid down in Article 63 of the TAL;
  2. by filing a request with the guarantor to discharge the taxpayer's obligations and pay his arrears (where the discharge of tax obligations is ensured by a suretyship or guarantee);
  3. by instructing a credit, payment and/or electronic money institution to write off the amounts of arrears from the guarantor's account in the event that the guarantor fails to fulfil the requirements laid down in paragraph 2 of Article 106 of the TAL. Such an instruction shall be carried out in accordance with the procedure laid down in Article 63 of the TAL;
  4. by adopting a decision to enforce the recovery of arrears from the assets of the taxpayer or the guarantor. This decision shall be enforced by bailiffs in accordance with the procedure laid down in the Code of Civil Procedure;
  5. by adopting a decision to enforce the recovery of arrears secured by a forced mortgage from mortgaged assets. This decision shall be enforced in accordance with the procedure laid down in the Code of Civil Procedure.

Other legislation governing tax administrator activities may establish a sequence of recovery measures listed in paragraph 1 of Article 106 of the TAL as well as grounds and procedure for the termination thereof.

Provisions of paragraph 1 of Article 106 of the TAL shall also apply when the tax administrator enforces recovery for the benefit of another state as specified in laws or international treaties.

The tax administrator may transfer his right of recovery to another state in cases established by laws or international treaties.

In the performance of applications for the recovery of requested amounts received from European Union Member States (hereinafter - EU states), provisions of the Law on Mutual Assistance for the Recovery of Taxes of the Republic of Lithuania are followed.

In the recovery of arrears in payments and cash amounts requested by the EU states, the STI under FM follows forms approved by the Order No. V-11 "On the Approval of Forms" of Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 14 January 2003, Order No. VA-142 of 19-07-2004, and Order No. VA-143 of 30-12-2011: Decision to recover arrears in payment and to terminate issuance of cash and transfer from bank accounts (form FR0492), Decision to recover arrears in payment from property (form FR0497), Decision to recover arrears in payment of the taxpayer from bank accounts of the guarantor (form FR0744), Decision to recover arrears in payment of the taxpayer from property of the guarantor (form FR0749), Decision to recover on the basis of an application of a foreign state (FR1068).

Decisions on enforced recovery of penalties from the person's property and/or funds (including monetary funds in person's accounts in credit, payment or electronic money institutions) adopted in accordance with the procedure laid down in the Code of Administrative Offenses shall be implemented by bailiffs according to a decision of the tax administrator on enforced recovery of penalty in accordance with the procedure laid down in the Code of Civil Procedure. If in the performance of enforced recovery of a penalty for administrative offense a bailiff is unable to find person's property and/or funds wherefrom enforced recovery of penalty could be executed within one year from the submission of a decision of the tax administrator on enforced recovery of penalty, the bailiff shall return a decision of the tax administrator on enforced recovery of the penalty to the tax administrator with a mark that recovery is impossible.

Suspension of enforced recovery

According to Article 110 of the TAL, enforced recovery of arrears in payment shall be suspended in the following cases:

  1. the filing of an appeal in case of a tax dispute shall suspend enforced recovery of disputed taxes, penalties and late payment interest, also, the crediting of the taxpayer's overpayment (difference) against the said amounts (except for cases when crediting is done at the taxpayer's request);
  2. the conclusion of a tax instalment agreement shall suspend the enforced recovery of taxes and related amounts where the time limit for their payment is deferred (spread);
  3. the tax administrator, acting in compliance with the criteria of prudence and economic feasibility, shall have the right at its own initiative not to initiate or to suspend the enforcement proceedings.

According to paragraph 26 of the Rules on the Deferral or Spread of the Discharge of Arrears in Payment or a Penalty for Administrative Offense approved by Order No. 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 (version of the Order No. 1K-216 of the Minister of Finance of the Republic of Lithuania of 23 June 2015), a tax administrator shall have the right not to initiate or to suspend enforcement proceedings of the arrears in payment or penalty for administrative offense the application for the deferral or spread of the payment whereof has been submitted from the day when a taxpayer has submitted to the tax administrator the application and all documents necessary for the examination of the application, before the day of the conclusion of a tax instalment agreement or the day when a decision is made not to defer or spread the payment term. However, this shall not obstruct the application of any enforcement measures of tax obligations to the arrears in payment provided for in the TAL.

According to paragraph 55 of the Rules on the Deferral or Spread of Discharge of Arrears in Payment or a Penalty for Administrative Offense approved by Order No. 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 (version of the Order No. 1K-216 of the Minister of Finance of the Republic of Lithuania of 23 June 2015), recovery of the penalty for administrative offense for the deferral or spread of the discharge whereof in a simplified procedure an application has been filed can be not instituted or may be suspended from the receipt of the application till the day when a decision upholding or rejecting the application to defer or spread the discharge of penalty for administrative offense was made.

According to paragraph 26 of the Rules for the Exemption from Penalties, Late Payment Interest and Interest approved by Order No. VA-144 of the Chief of the STI under the FM of 26 July 2004 (version of Order No. VA-89 of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 1 October 2012), if a taxpayer submits the application or having started a procedure for the exemption from penalties, late payment interest and/or interest at the initiative of the tax administrator, enforced recovery procedures of these penalties, late payment interest and/or interest shall not be started, and the started ones shall be suspended until the date of adoption of a respective decision of the tax administrator. If the tax administrator makes a decision not to exempt from the penalties, late payment interest and/or interest, the recovery of these arrears in payments shall be conducted in accordance with the procedure laid down in laws.

However, suspension of enforced recovery of arrears in payment shall not preclude the application of ways of enforcing tax obligations provided for in Article 95 of the TAL.

2. Tax reliefs applicable to a taxpayer in arrears in payment

Deferral or spread of arrears in payment

The TAL provides for a possibility to apply tax reliefs to the taxpayer experiencing temporary financial difficulties. For example, a local tax administrator may defer the payment of arrears in payment or spread it in the procedure prescribed by the Minister of Finance (Article 88 of the TAL). A taxpayer can take advantage of such a tax relief only having determined that having immediately paid arrears in payment, financial state of the taxpayer would become critical or he would experience major difficulties in performing its other financial obligations, but the deferral or spread of this arrears in payment would allow him stabilize his financial state and pay arrears in payment later on. The said provision shall not apply to a personal income tax withholding agent, except for cases when the deferral or spread of the deadline for the payment of this tax and related amounts additionally calculated during a tax calculation and payment inspection is requested.

The discharge of arrears in payment shall be deferred or spread by the decision of a local tax administrator, on the grounds whereof a tax instalment agreement between the taxpayer and the tax administrator is concluded. Interest shall be paid under a tax instalment agreement the amount of which shall be established by the Minister of Finance taking into account the weighted average of the annual interest rate for the Treasury bills of the Republic of Lithuania, issued by auction in the previous quarter. Where the taxpayer fails to make timely payments according to the schedule of payments approved by the tax instalment agreement, an increased amount of interest shall be calculated; where interest is not paid under a tax instalment agreement, late payment penalties shall be paid on such interest. Increased interest and late payment penalties on interest shall be calculated until the relevant amounts are paid (credited). The amount of increased interest and late payment penalties on interest shall be equal to the amount of late payment interest for delayed payment of tax.

For interest rates for a tax instalment agreement in 2011-2016, click here:

A taxpayer shall address the tax administrator with a request to defer or spread the discharge of arrears in payment.

The request shall contain the following:

  1. reasons of indebtedness;
  2. information on debts to other creditors (the State Social Insurance Fund Board, another tax administrator, credit institutions, etc.);   
  3. the period of time wherefor the deferral or spread of the discharge of arrears in payment is requested or a schedule for the payment under a tax instalment agreement is required;
  4. the amount of arrears in payment the deferral or spread of the discharge whereof is requested, i.e. indicating amounts of taxes the deferral or spread whereof is requested (separately by each tax), also, amounts of penalties and late payment interest of each tax.

A taxpayer shall address the tax administrator with a request to defer or spread the discharge of a penalty for administrative offense.

A free-form request shall indicate the following:

  1. date and number of the resolution imposing the penalty for administrative offense and the entity having adopted the resolution in the administrative offense case;
  2. amount of penalty for administrative offense;
  3. payment term of the penalty for administrative offense;
  4. period of time wherefor the deferral or spread of the penalty for administrative offense is requested;
  5. reasons of the request.

The taxpayer shall enclose with the request (given the scope and nature of activities of a specific taxpayer, the amount of arrears in payment the deferral whereof is requested - written free-form explanations or obligations of a taxpayer to pay arrears in payment in the future, agreements, letters of intent, a business plan and/or other), proving that he has actual possibilities to settle accounts with the budget if the discharge of his arrears in payment is deferred or spread. Documents substantiating the debt of appropriation managers to the taxpayer, who is submitting the request, having emerged from outstanding financial obligations and to be covered from budget funds shall in all cases be considered to be documents proving actual possibilities to settle accounts with the budget at the required extent. In such a case, the tax administrator will usually not require any other documentation.

Owner of an individual (private) company, members of a partnership and a taxpayer - natural person (including a person imposed a penalty for administrative offense) - shall present along with the request a completed questionnaire in the form set by the Central tax administrator presenting data on financial state of the payer. Questionnaire data, if the tax administrator does not have any information thereon, shall be confirmed by respective documents.

The taxpayer may be requested to submit additional data (documents) needed for adopting a decision to defer or spread arrears in payment or penalty for administrative offense.

Legislation

Law on Tax Administration of the Republic of Lithuania

Order No. 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 November 1998 "On the Approval of the Rules for the Deferral or Spread of Discharge of Arrears in Payment or a Penalty for Administrative Offense (version of the Order No. 1K-216 of the Minister of Finance of the Republic of Lithuania of 23 June 2015, as from 01-07-2015).

Order No. 236 of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 3 October 2001 "On the Approval of Forms of a Tax Instalment Agreement and Questionnaire of Natural Persons".

Order No. VA-65 of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 26 May 2011 "On the Approval of Forms".

Exemption from penalties and late payment interest

The taxpayer may be subject to the exemption from penalties, also from late payment interest calculated but not paid (recovered or credited) when certain grounds established in Articles 100 and 141 of the TAL are determined (for example, if the taxpayer proves the absence of his fault with regard to the violation, etc.).

The taxpayer may be exempt from penalties and/or late payment interest having submitted a free-form written request to exempt him from penalties and/or late fees (at the initiative of a taxpayer) or at the initiative of the tax administrator (in the absence of a request of the taxpayer).

Legislation

Law on Tax Administration of the Republic of Lithuania

Order No. VA-144 of the Chief of the State Tax Inspectorate under the Ministry of Finance of 26 July 2004 "On the Approval of the Rules for the Exemption from Penalties, Late Payment Interest and Interest".

3. Acknowledgement of arrears in payment as bad arrears

The tax administrator is provided with a possibility to acknowledge the arrears in payment of a taxpayer as bad if it is impossible to recover such arrears for objective reasons or where it is unfeasible in social and/or economic terms to enforce their recovery (Article 113 of the TAL) when:

  1. no property of the taxpayer is found or the property found is non-liquid (subparagraph 1 of paragraph 1 of Article 113 of the TAL);
  2. enforcement expenses exceed the arrears in payments (subparagraph 1 of paragraph 1 of Article 113 of the TAL);
  3. enforcing the recovery of arrears is infeasible due to difficulties in the economic (social) position of a natural person: the natural person needs state support (he has reached retirement age, he is disabled, he requires medical treatment, preventive medical care and rehabilitation, he is unemployed, he receives social benefits) or such support is already provided to him. Such grounds for the acknowledgement of arrears as bad shall be applied to only those taxpayers who are natural persons or where there are difficulties in the economic (social) position of the owners of individual (personal) enterprises or members of partnerships (subparagraph 3 of paragraph 1 of Article 113 of the TAL).

The tax administrator may acknowledge arrears in payment as bad in accordance with subparagraphs 1 and 2 of paragraph 1 of Article 113 of the TAL at its own initiative, while according to subparagraph 3 of paragraph 1 of Article 113 of the TAL the taxpayer shall present to the tax administrator a request for the acknowledgement of arrears in payment as bad enclosing documents issued by competent authorities certifying the fact that this natural person or owner of an individual (personal) company or member of a partnership has reached retirement age, is disabled, requires medical treatment, preventive medical care and rehabilitation or that he is unemployed, receives social benefits, also documents presenting data on income received by a person or his family and property that they own.

According to paragraph 2 of Article 113 of the TAL, if in the performance of enforced recovery proceedings no property  and/or funds of the taxpayer wherefrom enforced recovery of a penalty for administrative offense can be executed, is found, unrecovered penalty or a part thereof is acknowledged as bad, when a bailiff returns to the tax administrator a decision of the tax administrator on enforced recovery of penalty with a mark indicating that recovery is impossible.

According to paragraph 5 of Article 113 of the TAL, unpaid penalty or a part thereof can be resubmitted to the bailiff for enforced recovery without applying the time limit for the transfer of the penalty for enforced recovery of 6 month, when conditions for acknowledging the debt as bad change - property or income wherefrom recovery can be enforced emerge.

Legislation

Law on Tax Administration of the Republic of Lithuania

Order No. VA-92 of the Chief of the State Tax Inspectorate under the Ministry of Finance of 12 May 2004 "On the Approval of the Rules for the Acknowledgement of Arrears in Payment of Taxpayers as Bad, the Procedure for the Auditing and Accounting thereof and Methods of Calculating Expenses Relating to the Enforced Recovery of Arrears".

Order No. VA-104 of the Chief of the State Tax Inspectorate under the Ministry of Finance of 24 May 2004 "On the Approval of Forms".

4. Application of limitation period for enforced recovery of arrears in payment

The setting of the limitation period for enforced recovery of arrears in payments is an important institute facilitating the taxpayer's situation (Articles 107 and 108 of the TAL). Upon the expiry of the period of limitation for the enforced recovery of arrears in payment of 5 years, the tax administrator shall have no right to take any action of recovery or to credit at its own initiative (without the taxpayer's request or consent) the tax overpayment (tax difference) against the arrears in payments in respect of which the period of limitation for enforced recovery has expired. However, the expiry of the period of limitation shall not prevent the taxpayer from voluntarily discharging his tax obligation, i.e. paying arrears in payment himself.

The limitation period for enforced recovery of penalties for administrative offense is established by the Code of Administrative Offenses.

Legislation

Law on Tax Administration of the Republic of Lithuania

5.  Taking over arrears in payment

Pursuant to Article 86 of the TAL, the taxpayer's arrears in payments may, with the permission of the tax administrator, be taken over by another person (hereinafter - successor of the debt) - a legal person or another organization, or a natural person, except for a third person holding the status of a company undergoing bankruptcy of liquidation, or a third person subject to restructuring proceedings, also a third person having arrears in payment.

The successor of the debt cannot take over the taxpayers' arrears in payment which is disputed.

Arrears in payment of the taxpayer shall be taken over based on the agreement on the take-over of the arrears in payment concluded by the taxpayer and the successor of the debt, or on the signed obligation of the take-over of arrears in payment signed by the owner of an individual company intending to take over arrears in payment of his individual company and the tax administrator's consent to the take-over of arrears in payment of the tax payer by the successor of the debt.

The taxpayer or successor of the debt shall present to the tax administrator a completed and signed application in the form set by the STI under the FM to give a consent to the take-over of arrears in payment of the taxpayer (hereinafter - application).

The following documents and information must be presented along with the application:

  1. agreement on the take-over of arrears in payment or obligation of the take-over of arrears in payment and all annexes thereto;
  2. a statement issued by the CSTI on the settlement of accounts of the taxpayer and successor of the debt with the state, municipal budgets and state monetary funds. This provision shall not apply if the taxpayer or the successor of the debt submits the application electronically via My STI. In such a case, the tax administrator shall determine their indebtedness at the time of provision of the service;
  3. a confirmation that arrears in payment to be taken over is not appealed.

When an owner of an individual company (successor of the debt) takes over the arrears in payment of his company, he does not have to submit a statement on the settlement of accounts with the state, municipal budgets and state monetary funds and a statement from places of employment on labour relations-related income received by the successor of the debt during the past 12 month. Solely a statement on the settlement of accounts of the taxpayer (i.e. the company) with state, municipal budgets and state monetary funds must be presented.

In the examination of the application, the tax administrator may ask the taxpayer and the successor of the debt to submit other documents (for example, statements from other property registers, financial statements, declarations, confirmation of the bailiff on the taxpayer's payment of all executive case costs, etc.).

Legislation

Law on Tax Administration of the Republic of Lithuania

Order No. 51 of the Minister of Finance of the Republic of Lithuania of 25 February 2002 "On the Approval of the Rules for the Take-Over of Arrears in Payment of the Taxpayer".

Order No. 127  of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 17 May 2002 "On the Approval of the Procedures for the Take-Over of Arrears in Payment of the Taxpayer".

Order No. 86 of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 29 March 2002 "On the Approval of the Forms of the Agreement on the Take-over of the Arrears in Payment, Application for the Consent to the Take-over of Arrears in Payment and Decision on the Take-over of Arrears in Payment".

6. Payment of tax and related amounts on behalf of the taxpayer

As provided for in paragraph 3 of Article 83 of the TAL, the tax and related amounts (including arrears in payment) may be paid by third persons on behalf of the taxpayer in accordance with the procedure established by the STI under FM.

A person shall pay the tax on behalf of the taxpayer to the budget revenue account of state tax inspectorate of that county whereto the tax must be paid by the taxpayer (hereinafter - CSTI).

A person (except for the person paying the tax on behalf of the taxpayer according to an agency agreement) shall indicate in the payment order a payment code 8240 (Payment on behalf of the taxpayer) from the "List of Codes of Taxes, Fees and Other Payments to the State Budget of the Republic of Lithuania, Municipal Budgets and State Monetary Funds" approved by joint Order No. V-57/1B-160 of the Chief of the STI under the FM and Director of the Ministry of Finance of the Republic of Lithuania of 26 February 2003.

A person or the taxpayer (except for the person paying the tax on behalf of the taxpayer according to an agency agreement) shall present to the CSTI, to the budget revenue account whereof he paid the tax on behalf of the taxpayer, a properly completed form of application and consent to crediting the payment FR0110.

A person paying the tax on behalf of the taxpayer according to an agency agreement shall enter in the field "Payment code" of the payment order a payment code of the paid tax and enter the code and name of the taxpayer in the field "Payment purpose", if the taxpayer is a legal person, or a personal code, name and surname of the taxpayer, if the taxpayer is a natural person.

A person paying the tax on behalf of the taxpayer according to an agency agreement shall present to the CSTI a copy of the agency agreement.

Legislation

Law on Tax Administration of the Republic of Lithuania

Order No. VA-6 of the Chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania (hereinafter - the STI under the FM) of 30 January 2006 "On the Approval of the Description of the Procedure for the Payment of Tax and Related Amounts for the Taxpayer and Repeal of Certain Orders of the Chief of the STI under the FM.